Thursday, March 28, 2013

BSA and four law professors agree: injunctions should 'ordinarily' not be available for SEPs

Two more amicus curiae briefs related to Google's appeal of Judge Posner's FRAND ruling in Apple's favor have become available: one of them was submitted by BSA | The Software Alliance, and the other one by four law professors. Both support Judge Posner and Apple. I have previous published and commented on Intel's pro-affirmance and Qualcomm's pro-reversal briefs. In connection with the latter I said that one of the two key challenges Apple and its amici face in their defense of Judge Posner's reasoning is the part of the eBay v. MercExchange ruling that disfavors the unavailability of injunctive relief in any "broad swath" of cases. The BSA and the four professors argue that Judge Posner's ruling is perfectly consistent with eBay and explain why injunctions over FRAND-pledged standard-essential patents (SEPs) in most cases must be denied as such requests fail to satisfy the eBay criteria.

On the availability of injunctive relief over SEPs, both briefs take very similar positions. The professors write that "Injunctions Ordinarily Should Not Be Available To Holders Of RAND-Encumbered Standard-Essential Patents". The BSA says Judge Posner "correctly recognized that injunctions ordinarily are not an appropriate remedy for infringement of a standard-essential patent when the patentee has made a [F]RAND commitment". The word "ordinarily" appears repeatedly in both submissions, which of course raises the question of which extraordinary circumstances would warrant injunctive relief. The only examples given are that an infringer cannot be sued for royalties, in which case an ITC exclusion order may be appropriate, and scenarios in which someone refuses to pay a FRAND royalty determined by a court or an arbitrator.

Both submissions apply the eBay criteria to the issues presented by Google's appeal. According to eBay, a patent holder seeking an injunction must demonstrate: "(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction."

Judge Posner had placed particular emphasis on the second part, inadequacy, which he considered to be an absolute requirement that generally can't be met in FRAND cases. The amicus briefs go into a more detailed factor-by-factor analysis.

Addressing the first two factors (irreparable harm and inadequacy of monetary compensation) together, the professors express their belief "that a patentee who has committed to license its patent to all comers cannot, absent egregious conduct by the putative licensee, demonstrate that it has suffered an irreparable injury or one for which money damages would be inadequate". They also find with respect to the third factor that "the balance of hardships between a patentee and a standards-implementer ordinarily tips decidedly in favor of the implementer where a [F]RAND-encumbered standard-essential patent is at issue" in light of significant investments and the related lock-in (high switching costs). With respect to the fourth factor, the public interest, they tout the positive and potentially pro-competitive effects of standards (interoperability etc.) and warn against the chilling effects of letting patent holders prevent industry players from implementing standards.

BSA makes clear that it's not against all SEP-based injunctions, but it supports injunctive relief only in special circumstances and normally opposes it. BSA is also known for supporting injunctive relief with respect to non-SEPs. Its brief focuses on why SEPs are so special and must be treated differently.

Performing the eBay test, BSA writes that "because the premise of a [F]RAND commitment is that the patentee will make licenses available on reasonable terms to those who wish to practice the patent, a patentee who has made a [F]RAND commitment ordinarily will be unable to establish that denial of an injunction would lead to 'irreparable injury.'" Accordingly, BSA agrees with Judge Posner that a patent holder who makes a FRAND pledge "acknowledge[s] that a royalty is adequate compensation for a license to use that patent." Like the law professors, BSA also points to "high switching costs" and a potential "lock-in effect" in connection with the third eBay factor (balance of hardships). With respect to the fourth factor, BSA writes that the public interest "would be threatened if courts frequently awarded injunctions to remedy infringement of [F]RAND-encumbered, standard-essential patents, because such remedies could seriously
destabilize the standards-setting process and thus deprive consumers of its considerable benefits." BSA also makes an "unclean hands" argument against the abuse of SEPs through an "opportunistic bait-and-switch" (promising FRAND licenses in order to make a patented technique part of a standard only to turn around later and leverage the lock-in situation against an implementer).

One might argue that the submissions by BSA and the four law professors are in some regards duplicative, but as I said in another post, amicus curiae briefs are not only about what is said but also about by whom it is said. In that regard, a leading industry organization and a group of law professors are complementary.

In closing I would also like to draw attention to a very interesting paper published this month by one of the four law professors who submitted the aforementioned amicus brief, University of Minnesota Law School Professor Thomas F. Cotter. "Reining in Remedies in Patent Litigation: Three (Increasingly Immodest) Proposals" proposes that injunctions be unavailable over FRAND-pledged SEPs, advocates apportionment of the disgorgement of an infringer's profits that a design patent holder can seek (this approach would have taken care of a substantial part of the damages issue in Apple v. Samsung, for example), and finally -- which is the most ambitious part but makes a lot of sense to me -- elaborates in the form of a "thought experiment" on an idea Judge Posner tossed out a few month ago: for a "wide swath of U.S. patent cases" it might be preferable to avoid juries. Obviously the Seventh Amendment right to a jury trial is difficult to challenge, but Professor Cotter talks about a way in which bench trials might be justified in many patent cases under the existing legal framework.

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About Me

Florian Mueller used to be an award-winning intellectual property activist. His 30 years of software industry expertise span different market segments (games, education, productivity and infrastructure software), diverse business models, and technical and commercial areas of responsibility. In recent years, Florian advised a diversity of clients on the patent wars surrounding mobile devices, and on their economic and technical implications. (In order to avoid conflicts of interest, Florian does not hold or initiate transactions in any technology stocks or derivatives thereof, except that he is long AAPL.) He is now developing games for smartphones and tablet computers.